Thursday, February 29, 2024
When I first started out in real estate, I had a vision for what a Real Estate Investor looked like.
I remember reading Rich Dad Poor Dad and envisioning myself, like Robert Kiyosaki, sitting at a table each month with all of my advisors, like my attorney, project manager, accountant, business manager, CFO, etc. I wanted to be at the head of the table, and I wanted to get there immediately. I found a real estate agent as my first “advisor,” purchased a house with his help, and then found a GC to do the rehab.
My plan was working!
Fast forward several months.
I was out of money, my rehab looked nothing like I had imagined it would, and all my “advisors” had left the table. To get out of this mess, I had to sell my truck, rent out the house I was staying in, and sleep on a jobsite in a sleeping bag until I finished the rehab myself. I had put the cart before the horse.
I had tried to build a house on a weak foundation - no pun intended!
Although I thought I had a vision for how my real estate investing journey would turn out, the truth was that I had no idea what my goal was, or even where I was along the journey.
I just knew I wanted to be wealthy, and I wanted to use real estate to make that happen. It took me quite a bit of growing up before I realized what I actually wanted and why. A big part of that came from understanding not only the different levels of real estate investing, but the pros and cons of each and how they fit into my personal big-picture plan.
When I started out, I was a novice with little to no money to my name and my strategy should have reflected that.
The problem, of course, is that I didn’t take my current level into consideration, I just went full-steam ahead.
It took me having to start over and work through all the stages of being an investor before I finally figured out where I wanted to be and how to get there. Don’t make the same mistakes I did. Learn to recognize what stage of investing you’re at and how you get where you want to be.
There’s no real “right” answer to this (even though I’ll tell you what I think is the best answer anyway!).
Here are the stages I went through.
As I mentioned before, I slept in a sleeping bag on the jobsite.
At some point, I upgraded to having a slide-in camper that I placed in the backyard of houses that I would buy. I did this for the better part of a decade. Every single dollar that was spent on a rehab project would be carefully tracked.
At this stage, I focused more on the dollars spent vs the time I lost.
With each house I bought, I would gradually increase the size of the rehab project.
I’d go in with my code book (along with other building books) and decipher how to do what was necessary for the project. Then the next day, I would tear it all out after realizing what I had done wrong. Day three would be the day I would get it right.
Eventually I learned how to create some fancy stuff.
The problem, however, was that I didn’t want to be a contractor/handyman.
The last project that I did by myself took 550 days straight of 16 hour days! I missed two Christmases. I had created a lucrative job for myself, and I had put some money in my pocket.
But I had no way to actually get ahead.
A DIYer does all the work by hand. He or she may hire out professional tradesmen like electricians, plumbers, HVAC techs, etc., especially if a license or permit is required.
A DIYer usually sources deals on his or her own, perhaps with the help of a real estate agent or wholesaler. Sometimes, a DIYer finds houses without extra help, but that’s rare. Often, a DIYer is someone newer to the game or perhaps a blue-collar type individual turned “investor.” Note the quotes here - it’s not investing unless you’re holding long-term rentals.
After getting these skills under my belt, I felt like I was ready for the next step: hiring a crew that I would manage.
So I bought my next flip house and went out recruiting.
At first, I started with a four-man crew. Every day, I’d go to the jobsite to work with them and manage the project. After a while, my crew had grown to ten guys. Turns out, that’s way too many guys for one rehab project, so I started to take on others.
More projects meant I needed to spread my crew around, and I could no longer be with them each day.
That is when the real issues started.
I ended up spending most of my time solving problems and paying for mistakes rather than making any real progress on these projects.
At some point I started thinking, ”I would probably get more work done if I was just doing it all myself!” On top of that, paying for a crew this large took a huge hit on the money I had made DIY flipping. Eventually, I knew I couldn’t continue making payroll at the rate we were going. What came next was what I called (at the time) “Bloody Friday.”
I went to all of the jobsites and let everybody go with their final paychecks.
Back to the drawing board.
The Foreman hires a crew of W2 workers (or uses a staffing company) and leads the crew from the ground.
The Foreman is usually the next step up from a DIYer. He or she has learned enough (or already knew enough) about how to complete a rehab project and is able to manage others to do the work.
After my experience as The Foreman, it was very clear that the “weekly tap” of the payroll was NOT the way to do this thing.
There had to be a better way than being a slave to the constant outflow of money. So I decided I would find subcontractors for every trade. This way, I would get a price that would be predetermined and then I could sit back and wait.
In theory this was great, but in practice, it was nothing but.
Every time it seemed like a job was “finished” there were all kinds of loose ends.
Since I had subcontracted everything out, I either had to clean up these loose ends myself or hire someone else to do it. I still remember the project that was the breaking point for me. Everything was finally completed, and during my walkthrough, I decided to turn on the shower.
The kitchen below started to rain!
I had to go as far as opening up the newly installed tile wall to find the problem.
The water line had been hit by a screw. Now, normally, this isn’t a big deal - it’s a simple fix, especially when you have the walls opened up. But what I found really shocked me - the pipe was “repaired” with DUCT TAPE!
That’s when I realized that this way of doing things left a huge gap in accountability!
The MIYer plays the part of a general contractor, planning out the scope of work, recruiting and hiring subcontractors, setting expectations, and holding accountability.
The MIYer is typically a more experienced investor who understands the game of investment and rehabs.
Unfortunately for me, this is actually where my story began (see above).
I was new to the game and I thought that I could just hire any GC and he would know what I wanted, how to achieve it, and deliver it in the most price-effective manner.
Man, WHAT A SUCKER!
The Vacationer hires a general contractor to do it all.
He or she may give the GC a scope of work, or even have him make one if he’s experienced enough. The Vacationer deals with the GC and only the GC. He or she buys a house, agrees with a GC on a price, timeline, and pay schedule, and then waits for the project to be done.
The Vacationer is looking for a truly PASSIVE project.
The Vacationer is usually a beginner who doesn’t know enough about construction to be effective. That said, The Vacationer can also be a super advanced investor who has already set up a solid foundation for him or herself and can afford a passive project.
The final project in the “old days” was a project that went wrong for multiple reasons, but it all led to me back to square one: finishing the project with my own two hands.
I was out of money and knew that once I sold that property, I’d be back to basically zero dollars, but I could clear my debts. This was my prison sentence, and I had to serve my time. Every day, I got to wake up and think about what an idiot I was. I backed myself into a corner by trying to do bigger and bigger projects and hire more and more people.
All it did was give me more and more problems.
And for what?
At the end of it all, I was worse off than when I started years before.
But after I licked my wounds and played the “woe is me” game of grieving, I started thinking about how I could do things better. I thought about how my goal with real estate wasn’t just to get wealthy, buy expensive stuff, and sit at the head of a table with my group of advisors. My goal is to set up a business that could provide for me and my family - a business that could be the “moat” around the better life I wanted to create.
With this goal in mind, I came up with the rehabbing strategy that works for me - the same one I’m trying to teach you.
Due to my multifaceted approach to rehabbing, I haven’t had to pick up a hammer for over five years now (except for when my wife gives me my “honey do” list at home).
For the investor doing 1-4 projects at a time, take this approach to rehabbing:
In a nutshell, this is our team for rehabs and has been adapted from my exact setup that allows us to do around 20 projects at a time.
Now, for some of our projects, we use the more advanced (and lower profit) strategy of hiring a GC to take the project over. This is similar to hiring a subcontractor, however, you will have to set checkpoints to make sure expectations are being met (we call these phases).
You have to take it slow.
Don’t start out by going big and doing multiple projects at one time. At first, your goal is to not lose your butt. Focus on learning and understanding these different stages and asking yourself if you’re at the stage you want to be. If you stay in the game long enough, you will acquire the skills and knowledge to understand the right combination of these stages that work for you and your strategy.
So keep at it.
Good luck out there investors.
CEO Of Larossa
After flipping over 300 houses, holding a portfolio of 150 properties, and creating a successful construction company for over a decade, I felt compelled to pay it forward by sharing the wealth of knowledge and experience I’ve accumulated on my journey.
One tip at a time...
We spent over a decade focusing on one thing: creating systems to remove the complexity and headaches that come along with renovating a home.
This allowed us not only to scale to flipping over 300 homes, but to have predictable, reliable returns, and most importantly peace of mind knowing that we would never have major unexpected construction costs.
Each week I take the time to make sure I send you something valuable and useable
We sit down each week and figure out how we can send you the most valueable and useable tips possible to help you increase your skills and ultimately your profit in Real Estate Investing.